Note 6. Income Taxes

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods.

A reconciliation of the beginning and ending unrecognized tax benefit related to uncertain tax positions is as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Beginning of period	$	196	$	391	$	196	$	391
Increases due to tax positions taken during the current year		-		-		-		-
Increases due to tax positions taken during a prior year		-		-		-		-
Decreases due to the lapse of the statute of limitations during the current year		-		-		-		-
Decreases due to settlements with the taxing authorities during the current year		-		-		-		-
Balance at June 30,	$	196	$	391	$	196	$	391

Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The total amount of interest and penalties recorded in the income statement for the three and six months ended June 30, 2015 was $9,600 and $19,600, respectively. No interest and penalties were recorded for the three and six months ended June 30, 2016.

Pinnacle Financial's effective tax rate for the three and six months ended June 30, 2016 was 33.9% and 33.5%, respectively, compared to 33.2% and 33.1%, respectively, for the three and six months ended June 30, 2015. The difference between the effective tax rate and the Federal and State income tax statutory rate of 39.23% is primarily attributable to our investments in bank qualified municipal securities, investments in low-rate housing loans that qualify for Tennessee state excise tax credits and bank-owned life insurance, offset in part by meals and entertainment, a portion of which is non-deductible.